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Google and Ikea lead wind energy investment

WORLDWIDE: Despite moving into the mainstream, the wind industry is hungrier for investment than ever. This sector continues to attract investment from traditional areas such as governments, banks and private-equity companies. But now new source is entering the fray. Over the past year, a number of consumer brands have committed significant funds to the development of large-scale wind projects.

These new entrants include US retailer Walmart - which has acquired wind energy power purchase agreements in the US - and Fujifilm, which is building a 10MW generation project with Vestas V90 turbines at one of its factories. But the headline investments have been made by Swedish furniture chain Ikea and internet giant Google. In 2010, both companies spent millions acquiring commercial wind projects as part of their green investment initiatives.

Brands are never slow to take advantage of a shift in public opinion and right now they see that is focused on climate change. But there is another benefit.

Market conditions are such that - in addition to proving environmental credentials - wind investments can make a healthy profit. With such a clear rationale, the question is whether the actions of Google and Ikea can move from the pioneering to the standard practice for consumer-facing businesses.

Rick Needham, green business operations director at Google, says that although wind power is one of a number of renewable technologies his company is concentrating on, it is an important one. "We've found wind gives good returns because it's one of the renewable-energy sources that is already quite competitive with fossil-fuel based energy," he says.

Google steps up

In mid-2010, Google made its first major move into wind in the US by acquiring two projects in North Dakota with a combined capacity of 169.5MW. Last month, it linked up with two Japanese corporations - Itochu and Sumitomo - to invest $500 million in the 850MW Shepherds Flat project in Oregon. However, arguably the company's biggest move came at the end of last year when it announced it was backing the Atlantic Wind Connection (AWC), a $5 billion project to build an offshore grid running the length of the US Atlantic seaboard (see box and map, overleaf).

Needham admits the AWC is a risk, but one with a potentially higher payoff that could trigger much-needed US offshore development. "With respect to wind, one of the problems is transmission," he says. "But investment has been lacking for several decades in the grid itself. The AWC puts a transmission line in parallel with one of the most heavily congested corners of the eastern US."

Although its activity has so far been restricted to the US, Google is set to widen its search for wind projects. "We are looking worldwide," Needham reveals. "It just happens that the first two investments we made were in the US. We'd be encouraged to make investments in other markets as well and we're looking. We like to make investments in places where Google has operations, but that's not a critical thing.

"We want to make investments that have good returns but also have a transforming impact and can lower carbon emissions," Needham adds. "In some cases we may take a technological risk to do that, in other cases a financial risk. But if we do, those risks will be balanced against the potential benefits of those projects."

Closer to home

Ikea on the other hand is a little more restrictive in its search. In 2010, it bought 45MW of generation projects in Germany and France as part of its Ikea Goes Renewable initiative. Project manager Arvid Grindheim says while the company is investing in solar in the US, it is concentrating on Europe for wind investment. Grindheim explains this is principally because many of the wind companies are based there. "We're good at home furnishings, but we need to know more about wind," he says.

In addition to its French and German wind farms, the company is also in the midst of building its first project from scratch - a 20MW development in Sweden. Like Google, this is not just about being green: Ikea is already planning to sell the electricity on the open market. Unlike the internet giant, Ikea is focused on acquiring wind projects where it has stores and manufacturing facilities, so it goes some way to offsetting its own electricity usage.

In terms of grid investment, John Harris, Ikea Goes Renewable technical manager, says the company would be prepared to follow Google's lead on the AWC, but it would have to fit in with its own sphere of operations. "We're not planning anything immediate on grids, but if there's a good reason to do it, we're interested," Harris says. "For example, if someone said there was an opportunity to connect a wind farm at a sugar plantation to the grid then we probably wouldn't be interested."

One area that would be of interest to Harris for grids is China, where a sizeable proportion of Ikea's manufacturing capacity is based. "The grid limits what you can generate. The real question is: can everyone get together and make something like that happen?"

In terms of accusations of "greenwash" - or green propaganda - neither Google nor Ikea are planning a marketing campaign to publicise their renewables investments. However, for those companies that want to, there is another option: this year saw the launch of the WindMade initiative (see box, below), a project backed by major wind players such as Vestas and the Global Wind Energy Council (GWEC). If successful, it could do for renewables what Fairtrade has done for the developing world.

Message to consumers

In essence, WindMade is a Fairtrade-style logo for brands to display on their products to show they have been made using wind energy. The logo will be awarded to companies who can offset their own electricity usage through investment in wind energy projects. According to Morten Albaek, Vestas' group senior vice-president for marketing and customer insights who conceived the initial concept, it was inspired by the likes of Google and Ikea getting involved in the sector.

At the moment, the stakeholders in the project are setting out the criteria for it. This is not easy as no one can tell where their electrons actually come from. "We're not going to say you need to get 20% of your electricity from wind and then every company in Denmark qualifies," says GWEC secretary-general Steve Sawyer. "It has to be additional to what's in the system and that has to be through power purchase agreements or renewables certificates. It gets complicated, so that's one of the minefields we're working through."

Chain reaction

Eventually Sawyer envisages the WindMade brand diversifying through to other forms of renewables using the same criteria.

"Discussions with other sectors are ongoing," he says. "But there are problems. One is the small amount of electricity some of those sectors produce and a lack of an international trade body. The other is sources that have volume in the market but are more controversial in terms of sustainability, such as biomass and hydro."

If WindMade succeeded in the same way as Fairtrade, which runs in 50 markets worldwide, it could fuel a significant boom in wind energy. Investment is the lifeblood of the industry. As an example, the delayed passing of President Barack Obama's renewable-energy grant has been blamed for slowing 2011's pipeline in the US. In addition to highlighting renewables to consumers, the arrival of consumer brands could turn on additional investment taps and provide fresh impetus for wind energy developments around the world.

"It makes sense that companies get involved in renewable energy," says Google's Needham. "From our perspective the world needs better energy options. We see clean energy and sustainability as a good business opportunity too."

 

A STANDARD IN THE MAKING HOW WINDMADE HOPES TO BRING RENEWABLES TO THE MASSES

The WindMade project is the wind industry's attempt to harness the commercial sector's desire to prove its environmental credentials to consumers. To join, a company needs to invest in the wind sector. The size of this contribution depends on where the company is based and how much energy it uses. The exact criteria for calculating contributions is currently being discussed.

The initiative is backed by PricewaterhouseCoopers, the Global Wind Energy Council and wildlife charity WWF, and has signed up Legoland as its first brand.

But WindMade is the brainchild of Morten Albaek, Vestas' group senior vice-president for marketing and customer insights.

"We have watched with interest as ordinary corporations take an increasingly active role in renewable energy - by investing in their own wind turbines, making long-term power purchase agreements and somehow taking part in financing new projects," Albaek says about the motivation for creating the project.

"In our dialogues with executives from leading B2C corporations in the past year, it has become clear that companies are aware of the fact that consumers will favour companies and products made with clean energy - what is lacking is a global and credible communication platform that allows consumers to identify the ones that have made a real difference."

Public opinion

Ross Cathcart, a managing partner at Ogilvy Public Relations Worldwide who has worked with Shell as well as wind operations and maintenance specialist B9, says the project could face a challenge putting itself into the public's consciousness.

"It's a good time to launch this ...

but they're working on an assumption that the battle for hearts and minds has been won, and that's a questionable assumption to make," he says. "Also from the consumers' point of view, prompted or not, I'm not sure they will get it. It makes sense from a B2B/B2C perspective to try this, but the criteria need explaining."

Criteria are key

Concern about the criteria is echoed by Ikea and Google, who have both been approached about the project. "WindMade has not shared how its labelling is going to be verified," says Rick Needham, green development director at Google. "But if it's done in a transparent way then it makes a lot of sense." Likewise, Ikea has said it is supportive but will not commit further until it knows what the details are.

Albaek agrees that getting the criteria right is crucial but believes in essence the scheme is straightforward. "I don't necessarily agree that the criteria will be challenging to communicate," he says.

"In fact, one of the strengths of WindMade is how transparent it is. It is what it says - WindMade, made with wind energy. We are providing 100% transparency on the source of the energy that a company consumes and its products are made with.

"This is in contrast to many of the existing local and regional 'green labels', which represent a number of different, and in some cases debatable renewable energy sources," Albaek adds.

Another to question the scheme is Erik Assadourian, transforming cultures director at environmental research body the Worldwatch Institute.

Full disclosure

Assadourian said the main issue with standards such as this is that consumers could be misled into thinking the product is good for the world. "On the WindMade homepage the first thing that pops up says: 'Imagine the computer you are working on was made of wind energy.' But it's still made from toxic chemicals and other plastics."

Steve Sawyer, secretarygeneral of the Global Wind Energy Council, is aware of this. "What's more complicated and will take us longer to develop would be the idea of producing a product 100% WindMade," he admits. "And that is very complicated in terms of how you define the project boundaries and how upstream you go in the product lifecycle.

"It depends on where you draw the boundaries in a way that's reasonable to incentivise the industry but not in a way that the standards are so high no one can meet them," Sawyer says.

Currently, the main challenge is to set the criteria. Sawyer says this is likely to be formally announced on World Wind Day on June 18.

 

SEARCHING FOR MORE GOOGLE GAMBLES ON THE ATLANTIC WIND CONNECTION

Internet giant Google's decision to become a major investor in the Atlantic Wind Connection project could take US offshore wind into the big league. The $5 billion project aims to provide a 6GW capacity grid connection for wind farms from New Jersey to Virginia. Google is providing 37.5% of the investment.

Speaking about the deal, Rick Needham, green operations director at Google, admits the Atlantic Wind Connection is a risk - but one that is outweighed by the rewards. More importantly, he says, it will help the Atlantic states meet their renewable-energy portfolio standards.

The bigger picture

"It also has a transformational impact," Needham says. "We're talking about allowing 6GW of wind to connect in an intelligent way. That's more than what was installed in the US last year. And yet it's only a small step to reaching the potential for that region, which is 60GW."

For the moment, Google - a company known for its technological prowess - is purely supplying its financial muscle to the project. Needham says the biggest issue is getting approval from the various regulatory bodies.

"Technically, there is work going on to identify all the aspects of the engineering that we need, what the costs are, how the system is managed and how it would fit into the transmission planning and operation.

"As we go forwards, there may be expertise that Google's had that we can offer, but at this stage it's mainly us acting as an investor and helping (the project) try and get through the stages to get the line approved."

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